Stephen L. Nelson, CPA, MBA, is a Certified Public Accountant in Redmond, Washington where he provides accounting, business advisory and tax planning and preparation services to small businesses. He has authored over 100 books about how to use technology to manage personal and business finances.

Introduction 1

About This Book 1

Foolish Assumptions 2

Icons Used in This Book 3

Beyond the Book 4

Where to Go from Here 4

Book 1: An Accounting Primer 7

Chapter 1: Principles of Accounting 9

The Purpose of Accounting 10

The big picture 10

Managers, investors, and entrepreneurs 10

External creditors 11

Government agencies 11

Business form generation 12

Reviewing the Common Financial Statements 12

The income statement 12

Balance sheet 15

Statement of cash flows 19

Other accounting statements 22

Putting it all together 23

The Philosophy of Accounting 24

Revenue principle 25

Expense principle 25

Matching principle 25

Cost principle 26

Objectivity principle 26

Continuity assumption 26

Unit-of-measure assumption 27

Separate-entity assumption 27

A Few Words about Tax Accounting 28

Chapter 2: Double-Entry Bookkeeping 29

The Fiddle-Faddle Method of Accounting 30

How Double-Entry Bookkeeping Works 33

The accounting model 33

Talking mechanics 35

Almost a Real-Life Example 39

Recording rent expense 39

Recording wages expense 40

Recording supplies expense 40

Recording sales revenue 40

Recording cost of goods sold 41

Recording the payoff of accounts payable 42

Recording the payoff of a loan 42

Calculating account balance 42

Using T-account analysis results 45

A Few Words about How QuickBooks Works 46

Chapter 3: Special Accounting Problems 49

Working with Accounts Receivable 50

Recording a sale 50

Recording a payment 50

Estimating bad-debt expense 51

Removing uncollectible accounts receivable 52

Recording Accounts Payable Transactions 53

Recording a bill 53

Paying a bill 54

Taking some other accounts payable pointers 55

Inventory Accounting 55

Dealing with obsolete inventory 56

Disposing of obsolete inventory 57

Dealing with inventory shrinkage 58

Accounting for Fixed Assets 59

Purchasing a fixed asset 60

Dealing with depreciation 60

Disposing of a fixed asset 62

Recognizing Liabilities 63

Borrowing money 63

Making a loan payment 64

Accruing liabilities 65

Closing Out Revenue and Expense Accounts 68

The traditional close 69

The QuickBooks close 69

One More Thing 70

Book 2: Getting Ready to Use QuickBooks 71

Chapter 1: Setting Up QuickBooks 73

Planning Your New QuickBooks System 73

What accounting does 73

What accounting systems do 74

What QuickBooks does 74

And now for the bad news 75

Installing QuickBooks 76

Dealing with the Presetup Jitters 77

Preparing for setup 78

Seeing what happens during setup 79

Running the QuickBooks Setup Wizard 79

Getting the big welcome 79

Supplying company information 80

Customizing QuickBooks 82

Setting your start date 83

Reviewing the suggested chart of accounts 84

Adding your information to the company file 85

Identifying the Starting Trial Balance 87

A simple example to start 87

A real-life example to finish 89

Chapter 2: Loading the Master File Lists 91

Setting Up the Chart of Accounts List 92

Setting Up the Item List 96

Working with the Price Level List 97

Using Sales Tax Codes 98

Setting Up a Payroll Item List 98

Setting Up Classes 100

Setting Up a Customer List 101

Setting Up the Vendor List 106

Setting Up a Fixed Assets List 109

Setting Up a Price Level List 111

Setting Up a Billing Rate Level List 111

Setting Up Your Employees 112

Setting Up an Other Names List 112

Setting Up the Profile Lists 112

Chapter 3: Fine-Tuning QuickBooks 115

Accessing the Preferences Settings 116

Setting the Accounting Preferences 118

Using account numbers 118

Setting general accounting options 119

Setting the Bills Preferences 121

Setting the Calendar Preferences 121

Setting the Checking Preferences 121

Changing the Desktop View 123

Setting Finance Charge Calculation Rules 125

Setting General Preferences 126

Controlling Integrated Applications 128

Controlling Inventory 129

Controlling How Jobs and Estimates Work 130

Dealing with Multiple Currencies 131

Starting Integrated Payment Processing 132

Controlling How Payroll Works 132

Telling QuickBooks How Reminders Should Work 134

Specifying Reports & Graphs Preferences 135

Setting Sales & Customers Preferences 139

Specifying How Sales Are Taxed 140

Setting the Search Preferences 141

Setting the Send Forms Preferences 142

Fine-Tuning the Service Connection 143

Controlling Spell Checking 143

Controlling How 1099 Tax Reporting Works 144

Setting Time & Expenses Preferences 145

Book 3: Bookkeeping Chores 147

Chapter 1: Invoicing Customers 149

Choosing an Invoice Form 149

Customizing an Invoice Form 150

Choosing a template to customize 150

Reviewing the Additional Customization options 150

Moving on to Basic Customization 155

Working with the Layout Designer tool 157

Working with the web-based Forms Customization tool 160

Invoicing a Customer 160

Billing for Time 166

Using a weekly time sheet 166

Timing single activities 167

Including billable time on an invoice 169

Printing Invoices 171

Emailing Invoices 171

Recording Sales Receipts 172

Recording Credit Memos 175

Receiving Customer Payments 177

Assessing Finance Charges 179

Setting up finance-charge rules 179

Calculating finance charges 180

Using Odds and Ends on the Customers Menu 181

Chapter 2: Paying Vendors 185

Creating a Purchase Order 185

Creating a real purchase order 186

Using some purchase order tips and tricks 189

Recording the Receipt of Items 189

Simultaneously Recording the Receipt and the Bill 192

Entering a Bill 194

If you haven’t previously recorded an item receipt 194

If you have previously recorded an item receipt 196

Paying Bills 198

Reviewing the Other Vendor Menu Commands 201

Vendor Center 201

Sales Tax menu commands 202

Inventory Activities menu commands 203

Print/E-file 1099s 203

Item List 204

Chapter 3: Tracking Inventory and Items 205

Looking at Your Item List 206

Using the Item Code column 206

Using the Item List window 206

Using inventory reports 207

Adding Items to the Item List 208

Adding an item: Basic steps 209

Adding a service item 210

Adding an inventory part 211

Adding a noninventory part 213

Adding an other-charge item 214

Adding a subtotal item 215

Adding a group item 216

Adding a discount item 217

Adding a payment item 218

Adding a sales tax item 218

Setting up a sales tax group 219

Adding custom fields to items 219

Editing Items 221

Adjusting physical counts and inventory values 222

Adjusting prices and price levels 225

Using the Change Item Prices command 225

Using price levels 226

Enabling advanced pricing 228

Managing Inventory in a Manufacturing Firm 229

Handling manufactured inventory the simple way 229

Performing inventory accounting in QuickBooks 230

Managing multiple inventory locations 233

Chapter 4: Managing Cash and Bank Accounts 235

Writing Checks 236

Recording and printing a check 236

Customizing the check form 241

Making Bank Deposits 243

Transferring Money between Bank Accounts 246

Working with the Register 247

Recording register transactions 248

Using Register window commands and buttons 251

Using Edit Menu Commands 254

Reconciling the Bank Account 258

Reviewing the Other Banking Commands 262

Order Checks & Envelopes command 263

Enter Credit Card Charges command 263

Bank Feeds command 264

Loan Manager command 265

Other Names list 265

Chapter 5: Paying Employees 267

Setting Up Payroll 267

Signing up for a payroll service 269

Setting up employees 269

Setting up year-to-date amounts 273

Checking your payroll setup data 274

Scheduling Payroll Runs 274

Paying Employees 274

Editing and Voiding Paychecks 276

Paying Payroll Liabilities 277

Book 4: Accounting Chores 279

Chapter 1: For Accountants Only 281

Working with QuickBooks Journal Entries 281

Recording a journal entry 282

Reversing a journal entry 283

Editing journal entries 284

Updating Company Information 284

Working with Memorized Transactions 284

Reviewing the Accountant & Taxes Reports 285

Creating an Accountant’s Copy of the QuickBooks Data File 288

Creating an accountant’s copy 288

Handling the accountant’s copy manually 288

Sending the accountant’s copy electronically 291

Using an accountant’s copy 292

Reusing an accountant’s copy 292

Exporting client changes 293

Importing accountant’s changes 294

Canceling accountant’s changes 295

Troubleshooting accountant’s copy transfers 295

Using the Client Data Review Commands 295

Chapter 2: Preparing Financial Statements and Reports 297

Some Wise Words Up Front 298

Producing a Report 298

Working with the Report Window 299

Working with Report window buttons 299

Using the Report window controls 306

Modifying a Report 308

Using the Display tab 308

Using the Filters tab 310

Using the Header/Footer tab 312

Formatting fonts and numbers 313

Processing Multiple Reports 314

A Few Words about Document Retention 315

Chapter 3: Preparing a Budget 319

Reviewing Common Budgeting Tactics 319

Top-line budgeting 320

Zero-based budgeting 320

Benchmarking 321

Putting it all together 322

Taking a Practical Approach to Budgeting 323

Using the Set Up Budgets Window 323

Creating a new budget 323

Working with an existing budget 325

Managing with a Budget 327

Some Wrap-Up Comments on Budgeting 329

Chapter 4: Using Activity-Based Costing 331

Reviewing Traditional Overhead Allocation 332

Understanding How ABC Works 334

The ABC product-line income statement 334

ABC in a small firm 338

Implementing a Simple ABC System 339

Seeing How QuickBooks Supports ABC 341

Turning On Class Tracking 341

Using Classes for ABC 342

Setting up your classes 343

Classifying revenue amounts 343

Classifying expense amounts 343

Making after-the-fact classifications 345

Producing ABC reports 346

Chapter 5: Setting Up Project and Job Costing Systems 347

Setting Up a QuickBooks Job 347

Tracking Job or Project Costs 350

Job Cost Reporting 353

Using Job Estimates 354

Progress Billing 355

Book 5: Financial Management 359

Chapter 1: Ratio Analysis 361

Some Caveats about Ratio Analysis 362

Liquidity Ratios 363

Current ratio 363

Acid-test ratio 364

Leverage Ratios 365

Debt ratio 365

Debt equity ratio 366

Times interest earned ratio 367

Fixed-charges coverage ratio 368

Activity Ratios 369

Inventory turnover ratio 370

Days of inventory ratio 371

Average collection period ratio 371

Fixed-asset turnover ratio 372

Total-assets turnover ratio 373

Profitability Ratios 373

Gross margin percentage 374

Operating income/sales 374

Profit margin percentage 375

Return on assets 375

Return on equity 376

Chapter 2: Economic Value Added Analysis 379

Introducing the Logic of EVA 379

Seeing EVA in Action 380

An example of EVA 382

Another example of EVA 382

Reviewing Some Important Points about EVA 383

Using EVA When Your Business Has Debt 385

The first example of the modified EVA formula 385

Another EVA with debt example 387

Presenting Two Final Pointers 389

And Now, a Word to My Critics 390

Chapter 3: Capital Budgeting in a Nutshell 393

Introducing the Theory of Capital Budgeting 393

The big thing is the return 394

One little thing is maturity 394

Another little thing is risk 395

The bottom line 395

Calculating the Rate of Return on Capital 396

Calculating the investment amount 397

Estimating the net cash flows 397

Calculating the return 401

Measuring Liquidity 405

Thinking about Risk 406

What Does All This Have to Do with QuickBooks? 408

Book 6: Business Plans 409

Chapter 1: Profit-Volume-Cost Analysis 411

Seeing How Profit-Volume-Cost Analysis Works 412

Calculating Break-Even Points 414

Using Real QuickBooks Data for Profit-Volume-Cost Analysis 415

Sales revenue 415

Gross margin percentage 416

Fixed costs 417

Recognizing the Downside of the Profit-Volume-Cost Model 418

Using the Profit-Volume-Cost Analysis Workbook 420

Collecting your inputs 420

Understanding the Break-Even Analysis Forecast 424

Understanding the Profit-Volume Forecast 425

Looking at the profit-volume-cost charts 427

Chapter 2: Creating a Business Plan Forecast 431

Reviewing Financial Statements and Ratios 432

Using the Business Plan Workbook 433

Understanding the Workbook Calculations 442

Forecasting inputs 443

Balance Sheet 443

Common Size Balance Sheet 450

Income Statement 451

Common Size Income Statement 455

Cash Flow Statement 455

Financial Ratios Table 461

Customizing the Starter Workbook 466

Changing the number of periods 467

Performing ratio analysis on existing financial statements 467

Calculating taxes for a current net loss before taxes 467

Combining this workbook with other workbooks 468

Chapter 3: Writing a Business Plan 469

What the Term “Business Plan” Means 469

A Few Words about Strategic Plans 470

Cost strategies 470

Differentiated products or services strategies 471

Focus strategies 471

Look, Ma: No Strategy 472

Two comments about tactics 473

Six final strategy pointers 473

A White-Paper Business Plan 474

A New-Venture Plan 477

Is the new venture’s product or service feasible? 477

Does the market want the product or service? 478

Can the product or service be profitably sold? 478

Is the return on the venture adequate for prospective investors? 479

Can existing management run the business? 480

Some final thoughts 481

Book 7: Care and Maintenance 483

Chapter 1: Administering QuickBooks 485

Keeping Your Data Confidential 485

Using Windows security 486

Using QuickBooks security 486

Using QuickBooks in a Multiuser Environment 487

Setting up additional QuickBooks users 488

Changing user rights in Enterprise Solutions 494

Changing user rights in QuickBooks Pro and Premier 497

Using Audit Trails 497

Enabling Simultaneous Multiuser Access 498

Maintaining Good Accounting Controls 499

Chapter 2: Protecting Your Data 503

Backing Up the QuickBooks Data File 503

Backing-up basics 504

What about online backup? 507

Some backup tactics 508

Restoring a QuickBooks Data File 509

Condensing the QuickBooks Company Files 512

Cleanup basics 514

Some cleanup and archiving strategies 519

Chapter 3: Troubleshooting 521

Using the QuickBooks Help File and This Book 521

Browsing Intuit’s Product-Support Website 523

Checking Another Vendor’s Product-Support Website 525

Tapping into Intuit’s Online and Expert Communities 525

When All Else Fails 526

Book 8: Appendixes 527

Appendix A: A Crash Course in Excel 529

Starting Excel 529

Stopping Excel 530

Explaining Excel’s Workbooks 530

Putting Text, Numbers, and Formulas in Cells 531

Writing Formulas 532

Scrolling through Big Workbooks 533

Copying and Cutting Cell Contents 534

Copying cell contents 534

Moving cell contents 535

Moving and copying formulas 535

Formatting Cell Contents 536

Recognizing That Functions Are Simply Formulas 538

Saving and Opening Workbooks 541

Saving a workbook 541

Opening a workbook 542

Printing Excel Workbooks 543

One Other Thing to Know 544

Appendix B: Government Web Resources for Businesses 545

Bureau of Economic Analysis 545

Finding information at the BEA website 545

Downloading a BEA publication 546

Uncompressing a BEA publication 547

Using a BEA publication 548

Bureau of Labor Statistics 548

Finding information at the BLS website 549

Using BLS information 549

Census Bureau 552

Finding information at the Census Bureau website 553

Using the Census Bureau’s publications 554

Using the Census Bureau search engine 554

Using the Census Bureau Subjects index 555

Securities and Exchange Commission 555

Finding information through EDGAR 556

Searching the EDGAR database 556

Federal Reserve 558

Finding information at the Federal Reserve website 558

Using the Federal Reserve website’s information 559

Government Publishing Office 559

Information available at the GPO website 560

Searching the GPO database 560

Internal Revenue Service 561

Appendix C: Glossary of Accounting and Financial Terms 563

Index 593

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